Daily Commentary by Larry Baer: The
Treasury Department will sell $35 billion of 5-year notes at auction
today. The final gavel will fall at 1:00
p.m. ET. These notes should draw a solid
bid from domestic and foreign investors alike.
If so, this event will probably prove to be supportive of steady
mortgage interest rates.
With the
presidential election only two weeks away most mortgage investors expect the
Federal Open Market Committee will finish two day's of monetary policy strategy
talks very quietly. The committee will
issue its traditional post-meeting statement at 2:15 p.m. ET this
afternoon. Look for this document to
offer little, if any substantive change to current monetary policy. The committee will likely give a nod to
recent signs of improvement in the labor and housing sectors, but will quickly
add that the glimmers of a stronger recovery are too few and too far between
for policymakers to consider any changes to its current course of action.
New U.S.
single-family home sales surged higher by a much stronger-than-expected 5.7% in
September according to data released earlier this morning by the Commerce
Department. It was the fastest pace of
sales since April 2010, when sales were boosted by a tax credit for first-time
homebuyers. Compared to September of
last year, new home sales were up 27.1%.
A lack of jobs and strict lending conditions still pose significant hurdles
to a more pronounced rebound in this sector of the economy - conditions highlighted
by this week's Mortgage Application Survey from the Mortgage Bankers of
America.
According to the MBA
significant declines in demand for both refinance and purchase-money mortgages drove
the composite index down by 12% during the week ended October 19th. The number of purchase-money applications
taken plummeted by 8.3% while demand for refinances fells by 12.9% on a
week-over-week basis. Refinance
applications account for 80.9% of all applications taken last week and 78.3% of
the prospective loan volume. The
contract for 30-year fixed-rate conforming mortgages rose by 6 basis-points to
3.63%. The interest rate is unchanged
from four-weeks ago, yet 70 basis-points lower than the year-ago level.
Trading action in
the stock markets will once again likely prove to be the strongest single
determinant influencing the trend trajectory of mortgage interest rates this
week. Higher stock prices will tend to
drag rates higher while falling stock prices are almost certain to prove
supportive of the prospects for steady to perhaps fractionally lower mortgage
interest rates. The Dow is testing the
very strong support at, or very near the 13,000 level (as I write it is trading
at 13,108). As I mentioned in Monday's
commentary I think it is likely a downward breach of the support at 13,000
opens the door for a drop into the 12,400 range before sellers might consider
taking a brief pause to catch their breath.
Should such a scenario actually develop -- the likelihood mortgage rates
will move lower from current levels is strong.
That is the good news part of this story. The bad news is the psychological impact a
stock market tumble of this magnitude would have on prospective borrowers will
probably result in reduced loan demand even in the face of steady to lower
mortgage interest rates.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
